Posted by phil fernandez on December 27, 2000 at 15:24:51:

Brian,

Points that banks, mortgage brokers and hard money lenders charge are really additional interest charges. One point equals one per cent of the loan amount.

Example : 1 point on a $100,000 loan would equal $1,000

2 points on a $70,000 loan would equal $1,400

Let’s say that you can get a first mortgage at a 7.25% interest rate. But to get this rate the bank would charge you 2 points on the loan amount being lent to you. So your real interest rate to the bank isn’t really the 7,25%, but the 7.25% plus the 2 points. So your rate with the 2 points might actually be 7.675%. Don’t ask me to do the math on how I came uup with the 7,675% cause I didn’t actually do the calculation.